Option #1: Using the Accounting Equation to Analyze Transactions

Second National Bank just approved a loan for Joey John’s Inc. to start a home gym design business. Joey John’s Inc. is ready to start the business by renting a small office facility, purchasing equipment, hiring sales, design, and administrative help, and beginning to provide services. During March, Joey John’s first month of business, the following transactions occurred:

  1. Joey John’s, Inc. signed a promissory note at the bank and received $50,000 cash.
  2. Joey John’s issued shares of capital stock to its shareholders to raise another $75,000 cash.
  3. Joey John’s purchased training and design equipment in the amount of $35,000 cash.
  4. Joey John’s purchased supplies worth $500 on account. These supplies are expected to last 6 months.
  5. Joey John’s hired Joshua Ramirez to assist with design and sales on a part-time basis. He will be paid a salary of $1,000 per month for his work.
  6. During the first month, Joey John’s completed design work on its first two facilities, one for P. Christopher, and the other for Josephine Johnson.
  7. Joey John’s completed the design work for P. Christopher and sent him a bill for $1,250.
  8. Joey John’s completed the design work for Ms. Johnson and sent her a bill for $750.
  9. Joey John’s collected half of the money ($625) in cash from P. Christopher, with a promise to pay the additional amount next month.
  10. Joey John’s paid Joshua $1,000 cash for his first month of service.
  11. Joey John’s received $500 cash in advance to work on a design project for a local gym. Work on the site will not begin until August.
  12. Joey John’s paid rent of $500 in cash.

Required: Using the Excel template, complete the following activities:

  1. Analyze each transaction’s effect using the accounting equation, if needed.
  2. Provide a written explanation (one sentence) on the effect of the transaction on the accounting equation.

Review the grading rubric to understand how you will be graded on this assignment. Review Module 1 Part 3 Lecture: The Accounting Equation, 4.1 (Accounting Cycle) & 4.2 (Preparing Financial Statements) for examples related to your Critical Thinking assignment for this week. Reach out to your instructor if you have questions about the assignment.

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